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Brazilian finance minister to US investors: We are open for business

·Reporter
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Brazil has been clawing itself out from the worst recession in its history, but that hasn’t stopped President Michel Temer from touting the country to investors. Temer and his entourage told American business leaders at an event leading up to the United Nations General Assembly that the country is open for business.

“We have absolute conviction that the country, no matter who is elected [to the presidency in October] and it stays on this path [of reforms] we will be able to raise the growth rate and potential of the Brazilian economy, lower unemployment and generate more income throughout the entire economy,” said Eduardo Guardia, Brazil’s finance minister.

Brazil’s gross domestic product started its recovery in the second quarter of 2017 after hitting a low of -5.58% growth in the fourth quarter of 2015. In the second quarter of this year, its GDP rose 1.03%.

Brazil’s Finance Minister Eduardo Guardia gestures as he attends a media conference in Brasilia, Brazil May 28, 2018. REUTERS/Adriano Machado
Brazil’s Finance Minister Eduardo Guardia gestures as he attends a media conference in Brasilia, Brazil May 28, 2018. REUTERS/Adriano Machado

Guardia said Brazil owes the turnaround to important reforms implemented under Temer, who has been president since 2016. Not only is the country growing again, but unemployment is on the way down. The government enacted a ceiling on public spending, passed labor reform and tackled pension reform briefly, but backed off after it was met with much opposition and protests from Brazilians.

Prior to Temer, former President Dilma Rousseff who was impeached in 2016, overspent while inflation and interest rates spiraled out of control. But when Temer, who was Rousseff’s former vice president, took over, the country began a turnaround: GDP started to recover, external accounts nearly balanced and interest rates and inflation was reined in.

Making a bold statement, Temer announced at the Brazil-U.S. Business Council luncheon event that he will push to pass public pension reform before his presidential term ends next month. “I want to announce for the first time that I want to do pension reform,” said Temer to a room full of about 100 American business people. Temer hopes the incoming president has an open ear.

Reform is crucial

Fiscal reform should be a priority because that’s the economy’s biggest challenge, said Guardia. “We don’t have a foreign account problem; we don’t have an inflation problem. We have interest rates at low levels, but there’s still a big challenge ahead in the fiscal area,” he said.

Both Guardia and Temer need more time to enact reforms. Last year, Temer introduced pension reforms that Guardia said will boost Brazil’s economy by simplifying the tax code without raising revenues.

“We have a defined macro- and microeconomic agenda that’s sitting in Congress,” said Guardia. “What we need to do is implement them, approve the laws and certainly Brazil will grow even faster.”

Guardia noted that investors are wary about Brazil’s economic health because there’s no guarantee that the next regime will continue the reforms introduced by Temer. “The uncertainty that exists today around reform… is that they are absolutely necessary for the country,” said Guardia. “Because it’s not only for investors or the financial sector, but for businessmen who have an investment horizon and who want to believe and invest in the country.”

Myron Brilliant, executive vice president and head of international affairs of the U.S. Chamber of Commerce, touted U.S.-Brazil relations. “We want to see a continuation of the president’s policy for structural reform. I want to make sure we double down in our commitment and relationship in Brazil,” he said. “As Brazil has become more attractive to American companies, we invite Brazilian companies to expand in the U.S.”

Brazil’s currency, currently trading at 4.08 reals per $1, is at its weakest point since the height of the recession in 2015. The dollar, which has been strengthening as the U.S. Federal Reserve hikes interest rates, has sent many emerging market currencies including the real toward record lows. In June, Guardia told Bloomberg that the strong dollar has a lot to do with the currency’s recent rout. He would not speculate on the real when asked by Yahoo Finance, but said he believes in an independent central bank and treasury department.

“What we have to focus on is on the fundamentals of the economy, and the central question to be answered is fiscal and pension reform,” said Guardia. “We don’t lack revenues — the tax burden is high. What we had was public expenses that grew too much and it’s that theme that we need to face.”

Maylan Studart is a reporter for Yahoo Finance

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